Lawmakers prepare to tackle state pension shortfalls

GOP leaders want to switch new state, school employees to 401(k)-style plan.

December 25, 2012|By Karen Langley, Of The Pittsburgh Post-Gazette

HARRISBURG -- As policy makers look for Gov. Tom Corbett's pensions proposal early next year, top Republican senators are renewing an effort to enroll new state and school employees in a 401(k)-style defined contribution plan.

With pension payments set to consume increasing portions of the state budget, Corbett, a Republican, has made a priority of overhauling the state and public school employee retirement systems. His budget office recently released a report saying the governor plans to address pensions in his February budget speech.

In the meantime, a group of senators including President Pro Tem Joe Scarnati, R-Jefferson, and Majority Leader Dominic Pileggi, R-Delaware, are reintroducing a bill to divert new hires from the underfunded defined benefit plans, the State Employees' Retirement System and the Public School Employees' Retirement System, to a new defined contribution system.

"The basic idea is to bring public sector pensions in line with private sector pensions," Pileggi said.

The proposal calls for the state to match employee contributions of up to 6 percent of applicable earnings.

State Rep. Glen Grell, R-Cumberland, has introduced proposals in the past for hybrid plans that would combine aspects of defined benefit and defined contribution systems. He described the Senate proposal as "a good place to start," but said that before supporting a pure defined contribution plan for new hires he would want to address the effect on the existing plans.

"I equate it to turning off the spigot of any additional money coming into that plan," he said. "You have more members retiring and you have no new members coming into that plan, so you have fewer and fewer people paying for more and more retirees.

Pileggi noted that enrolling new employees in a defined contribution plan also means they would not incur liabilities for the existing plans, though he said it was a "fair observation" that challenges would accompany the transition as contributions were diverted from SERS and PSERS.

"It's unavoidable," he said. "The only way to avoid it is to never change the system, which everyone agrees needs to be changed."

According to the most recent reviews, SERS was 65.3 percent funded with an unfunded liability of $14.7 billion, while PSERS was 66.4 percent funded with an unfunded liability of $29.5 billion.

The report from the Corbett administration raised the possibility of changes to yet-unaccrued benefits for current employees, but Pileggi and Grell said it appears that would violate the state constitution.

David Fillman, executive director of the statewide council of the American Federation of State, County and Municipal Employees, echoed Grell's concern that switching new workers to a defined contribution plan would exacerbate the unfunded liabilities of the existing systems.